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Maximising Superannuation concessional and carry forward contributions

A key objective of setting up an SMSF is to increase your retirement nest egg and to save tax. A key strategy is to maximise your super contributions and carry forward concessional contributions. However its tough to keep up with all the changes the government is making to taxation and SMSFs and therefore its important to seek advice in implementing contribution strategies.

In the last 24 months, many changes impacting superannuation contribution rules have been made including:

  1. Transfer Balance Cap increased from $1.7m to $1.9m.
  2. From 1st January 2023, you may be eligible to make a downsizer contribution if you’re 55 years or older.
  3. Increase of the Superannuation Guarantee from 10.5% to 11%.
  4. Members aged 74 and below may be able to utilise the ‘bring forward’ non-concessional contributions rule.

It’s important to seek advice to leverage these changes to meet your investment goals.

Understanding changes to Contribution rules

There are two types of contributions in an SMSF, they are concessional and non-concessional contribution.

Concessional contributions

Concessional contributions made into your SMSF using income that has not been taxed at your marginal tax rate – commonly referred to as pre-tax contributions.

There are three types of concessional contributions:

  1. Superannuation guarantee contributions: These are mandatory contributions your employer makes on your behalf (i.e. 11% of your salary or wages).
  2. Personal concessional contributions: Contributions made from your own bank account or personally – to be claimed as a deduction in your own personal tax return using a Notice of Intent form. These are contributions that you make personally, directly from your bank account.
  3. Salary sacrifice contributions:  These contributions are part of your wages directed towards the SMSF.
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The non-concessional contribution is a contribution made with after-tax income. If you are over 75 years of age – you are unable to make a non concessional contribution.

The contribution cap for concessional contributions is $27,500 per year. As it is based on the concessional cap, the contribution cap for non-concessional contributions is $110,000 per year.

Changes to superannuation contributions

Key changes to superannuation contributions are:

Transfer balance cap (TBC) increased from $1.7m to 1.9m

If you start a pension post 1 July 2023, you can now transfer $200,000 more compared to previous years. For existing pensions, you could receive an indexation to your TBC, allowing you to transfer more savings into your pensions.

Super Guarantee Change

From 1st July 2023, the SG increased to 11%. The SG is scheduled to increase by 0.5% annually until it reaches 12% in 2025. Its important to check your payslip to ensure your employer is paying 11% of your wage to super.

Age Eligibility of downsizer contribution decreases

From 1 January 2023, members over 55 can make downsizer contributions. The previous eligible age was 60 years.

Changes to Carry Forward Contributions

Its important to check if you have carry forward concessional contributions available for the current year which allow you to utilise any unused portion of your concessional contributions cap from the previous five financial years.

Key eligibility requirements are:

  • total super balance of less than $500,000 as of 30th June of the previous financial year and
  • Be under 67 years or if you are between 67 and 75, have satisfied the work test during the current year.
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There are many SMSF strategies available to members to maximise their retirement and importantly reduce their taxable income and based on above it is imperative to plan in advance and maximise your contributions to your super where possible.

 

Disclaimer – The content has been prepared by Redwood Advisory Pty Ltd without taking account of the objectives, financial situation or needs of a particular individual and does not constitute financial product advice. This article should not be considered personal financial advice as it is intended to provide factual information only.

 

 

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